America's central bank pledged to peg interest rates at their ultra-low level for a further two years to boost growth in the world's biggest economy.

The US Federal Reserve said it was prepared to use a range of policy tools should growth and unemployment continue to weaken over the coming months.

But the US Federal Reserve made no commitment to begin a third round of quantitative easing, the process of electronic money creation that has pumped $2tn (£1.2tn) into the US banking system over the past two and a half years.

The announcement came as Wall Street was making a tentative recovery from the heavy falls of the past two weeks, but provided little boost to share prices.

Earlier, London's FTSE 100 Index rose for the first time in eight days in anticipation that the Fed's chairman, Ben Bernanke, would boost equity markets by proposing measures to prevent the US economy sliding back into recession.

In a statement, the Fed said it expected "a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting" and anticipated that a jobless rate of about 9% would decline only gradually towards the level judged by the central bank to be consistent with keeping inflation low and employment high.

It added that economic conditions were "likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013", and had looked at a range of policy tools to promote a stronger low-inflation recovery. These would be employed "as appropriate" in the light of fresh information on the economy.

Previously, the Fed had said it would keep borrowing costs low for an "extended period" but the commitment to maintain them at an exceptionally low level led to three members of the policymaking open market committee dissenting from the decision, the first time this has happened for almost 20 years.

The Dow Jones industrial average of US blue chip stocks had been up 100 points before the Fed's statement but was 150 points lower half an hour later. It regained those losses and closed up 430 points, a 4% rise for the day.

Cary Leahey, managing director and senior economist at Decision Economics in New York, said: "This is a lame way for the Fed to try to help the marketplace. They redefined extended period to mean at least mid-2013. But to today's marketplace, what difference does it make if they tighten in 2012 or 2013?"

Swings in share prices on Wall Street mirrored wild gyrations in the FTSE earlier in the day which saw the City's main share index down more than 250 points at one point in the morning before rallying to finish up 96 at 5165 points. The rise meant that the FTSE avoided falling for eight consecutive days in a row for the first time since the build up to the invasion of Iraq in early 2003. European shares ended broadly higher, halting a 20% dive over the previous two and a half weeks.

On the foreign exchanges, the dollar lost 4% of its value against the Swiss franc, while the price of another safe haven – gold – was trading at a new record high. Bullion has gained about 13% since the end of June and peaked at a session high of $1,778.29 in New York before the Fed announcement. The price of oil slumped in the New York futures markets as dealers anticipated lower demand from a stuttering US economy. The prospect of low growth also drove interest rates on US bonds lower. The yield on the benchmark 10-year Treasury bill dropped to 2.27% compared to 2.34% at the start of the day.